Bank Negara may lower interest rate

[MALAYSIA] Bank Negara Malaysia (BNM) may consider reducing the Overnight Policy Rate (OPR) by 25 basis points (bps) if signs of economic weakness emerge in the coming months, according to Hong Leong Investment Bank (HLIB). This potential move aims to counteract growth risks and support the nation's economic stability. ​

Economic Indicators Prompt Consideration

HLIB's analysis highlights a confluence of factors that could influence BNM's decision. The global economic slowdown, coupled with a relatively modest inflationary environment in Malaysia, provides the central bank with the flexibility to adjust monetary policy as needed. HLIB stated, "We do not think BNM will act in a pre-emptive manner but adopt a wait-and-see stance until firmer evidence of growth slowdown develops." ​

Current Monetary Policy Stance

As of January 2025, BNM has maintained the OPR at 3%, a position it has held since May 2023. This steady rate reflects the central bank's balanced approach to fostering economic growth while managing inflation. Economists have noted that this strategy underscores BNM's commitment to monitoring global financial and geopolitical developments to ensure economic stability. ​

Diverse Forecasts from Financial Institutions

Financial institutions have varied projections regarding the OPR's trajectory. In January 2025, analysts anticipated that BNM would keep the OPR unchanged at 3% throughout the year, citing expected inflation due to domestic policy changes, such as RON95 subsidy reforms and adjustments in electricity tariffs. Conversely, some research houses have suggested a potential 25 bps cut to 2.75% in response to global economic uncertainties and external pressures. ​

Implications of an OPR Adjustment

Adjusting the OPR has significant implications for the Malaysian economy. A reduction could lower borrowing costs, encouraging consumer spending and business investments, thereby stimulating economic activity. However, it may also lead to narrower net interest margins for banks, potentially impacting their profitability. Conversely, maintaining the current rate supports price stability but may not provide additional stimulus amid external economic challenges. ​

While BNM's current stance is to keep the OPR at 3%, ongoing assessments of economic indicators and external factors may prompt a reevaluation. The central bank's decisions will likely continue to balance the objectives of sustaining economic growth and ensuring financial stability in the face of evolving global and domestic conditions.